Home builders tell Fannie Mae to support mixed-use development

Little Italy development in San Diego. Photo credit: LA Wad via Flickr

Advocates of walkable neighborhoods found a key ally this week when the National Association of Homebuilders signed a resolution pushing government-chartered mortgage giants Fannie Mae and Freddie Mac to support more mixed-use development.

Buildings that put street-level retail below apartments or condominiums are a key ingredient in walkable, transit-friendly neighborhoods. But Fannie Mae and Freddie Mac currently refuse to finance projects that are more than 20 percent and 25 percent commercial, respectively.

Such restrictions – along with the lousy building market – has been a major barrier for "Main Street" projects and low- to mid-rise mixed-use projects. The situation has grown more problematic in the wake of the 2008 mortgage crisis as Fannie, Freddie, and the other government-sponsored enterprises now back more than 90 percent of new home loans.

The homebuilders association joined the Congress for the New Urbanism and the National Town Builders Association in asking Fannie and Freddie to allow projects that are up to 45 percent commercial.

"Every Main Street in America violates Fannie Mae's and Freddie Mac's rigid standards," John Norquist, president of the Congress for the New Urbanism, said last year.

The homebuilders association support brings the nation's largest construction trade group to the campaign. In the past, smaller building groups such as Leading Builders of America have been more aggressive in supporting green policies like energy-efficiency standards.

It's still an uphill battle to sway Fannie and Freddie, which received a $150 billion government bailout and which face uncertain fates as Congress contemplates overhauling the agencies. A spokesperson for their regulator, the Federal Housing Finance Agency, said the agency wasn't prepared to comment.

One industry watcher – Clayton Traylor, policy director for the Leader Builders of America – said the hobbled mortgage-finance corporations aren't likely to make changes like the one the homebuilders association is seeking.

"Regulators and people in Congress would look at that as [Fannie and Freddie] expanding their mission or loosening  their underwriting standards – both of which are big red flags," he said. "So any real change in that is probably going to have to come in a comprehensive reform package."

Which means reforming lending policy to encourage mixed-use development, like so many things, depends on Congress. This week's resolution fits a broader push to make sustainability a goal of federal housing policy.

Two of the more far-reaching such ideas, energy-efficient mortgages and location-efficient mortgages, reward borrowers who live in efficient homes and areas with low transportation costs. Research suggests that lower utility and driving costs make home-buyers more financially secure. But these proposals, like the mixed-use rule, require more clarity on the future of Fannie and Freddie.

"The U.S. mortgage market was designed to serve the single-family market," Traylor said. "Not mixed-use and not high-density. If we're going to migrate toward a change in the housing mix, mortgage rules are going to have to migrate with – or ahead – of those changes."